Global Themes /
China

Global themes for 2019 and beyond

    Paul Domjan
    Paul Domjan

    Head of Research, Analytics & Data

    Contributors
    Rahul Shah
    Christopher Dielmann CFA
    Hasnain Malik
    Tellimer Research
    14 January 2019
    Published by

    As 2019 gears up, we present our key themes for the year (and beyond). This edition focuses on what our analysts regard as the two biggest issues facing emerging and frontier markets today: 1) the threats and opportunities around China’s Belt and Road Initiative and 2) the rising level of vulnerability across developing market equities, with higher (albeit more slowly rising) US rates and monetary policy tightening elsewhere in the developed world meaning that excess indebtedness will remain a big risk. 

    Belt and Road Initiative is too complex to characterise as ‘good’ or ‘bad’

    In our first theme – ‘China and the Belt and Road Initiative – indivisible from geopolitics and the global trade war; threats and opportunities’ – Hasnain Malik, Head of Strategy and Equity Research, and Christopher Dielmann, Senior Economist, unpick some of the conventional understanding of the costs and benefits of China’s huge infrastructure development plan, identifying complexities that, they argue, many mainstream commentators miss. Rather than characterising the scheme as inherently ‘good’ or ‘bad’, their view is that Chinese capital tends to accelerate a recipient country along its existing development path, whether that path is positive or negative, and that some forms of Chinese investment, like infrastructure, have a greater ability to do this than others, like natural resources.

    Winners and losers in FM & EM equities

    Our second theme – ‘When the tide goes out… Macro headwinds expose vulnerability across FM & EM equities’ – explores the difficult environment for FM & EM equities, driven in part by interest rate dynamics both in the developed world and in developing markets themselves. We explore this by looking at three main sectors: financials, industrials and consumers. Our equity research sector heads have been able to draw out the key trends and investment implications across the many markets covered by Exotix Capital’s growing partnership network and translate them into actionable ideas.

    In financials, Rahul Shah assesses the potential winners and losers in 2019 from diverging interest rates in developing markets. In industrials, Vahaj Ahmed has sliced and diced 108 companies across our coverage universe to create an Exotix Industrials Ranking, which lists companies based on their resilience over the next 12 months. In consumers, Nirgunan Tiruchelvam’s Teflon Test identifies those names most at risk if the ‘debt bomb’ explodes. 

    We hope you enjoy reading the report. As always, we would be grateful for your feedback as our client about how relevant and useful these themes are to you, or indeed if there are key issues that you feel we are missing and would like to see reflected in our research in 2019 and beyond. These themes will help drive our research agenda throughout the year and we will take deeper dives into both of them, with more investment recommendations.

    List of Themes

    Theme 1: China and the Belt and Road Initiative – indivisible from geopolitics and the global trade war; threats and opportunities by Hasnain Malik and Christopher Dielmann

    Theme 2: When the tide goes out… Macro headwinds expose vulnerability across FM & EM equities

    • Financials: Positioning for diverging interest rates in 2019 by Rahul Shah, Rohit Kumar and Nkemdilim Nwadialor
    • Industrials: Egypt, Nigeria likely to outperform in 2019 by Vahaj Ahmed
    • Consumers: The debt bomb is ticking by Nirgunan Tiruchelvam